Tag: Henson trust
The use of planning tools such as a “Henson Trust” is an often discussed topic in the estate law world for what can be done to allow an individual who receives benefits from the Ontario Disability Support Property (“ODSP”) to receive an inheritance from an estate without losing their benefits. Although the Henson Trust can be an effective tool to allow an individual to receive an inheritance from an estate while not losing their benefits, as a central tenant of the Henson Trust is that the inherited funds do not “vest” in the beneficiary until the trustee makes a distribution in their favour (thereby allowing funds in the trust not to count against the asset limit provided for by ODSP before they are distributed), a beneficiary and/or Estate Trustee cannot create a Henson Trust after the testator has died as the inherited funds have typically already “vested” in the beneficiary and therefore would count against the asset limits for ODSP. As a result, if a beneficiary who receives an interest in an estate is also an ODSP recipient (and the Will did not use a tool such as a Henson Trust to ensure the inherited funds do not count against the ODSP qualification criteria), there is the risk that the beneficiary could lose their ODSP benefits as a result of the inherited funds putting them offside the ODSP qualification criteria.
Although advance planning is always preferable when dealing with a situation in which a potential beneficiary receives ODSP, sometimes for whatever reason a testator does not take steps prior to their death to ensure that their estate plan includes tools such as a Henson Trust that would allow the beneficiary to receive the inheritance as well as continue to receive their benefits from ODSP. Should this occur, although the options available after the testator’s death are more limited to the beneficiary, there remain certain remedial steps that could be taken by the beneficiary to help to insulate them against the risk that their newly inherited funds would disqualify them from ODSP.
The general parameters for who is entitled to ODSP and how it is to be administered is governed by the Ontario Disability Support Program Act (the “Act“), section 5(1) of which provides that the government through regulation is to establish a maximum “asset limit” for an individual who receives ODSP. The regulation that establishes the asset limit is O.Reg. 222/98 (the “Regulation”), section 27(1) of which sets $40,000.00 as the current maximum “asset limit” for an individual who receives ODSP (although such an asset limit is potentially higher if the individual has a spouse or dependants).
As a result of section 5(1) of the Act in collaboration with section 27(1) of the Regulation, if an ODSP recipient’s total assets exceed the $40,000.00 maximum asset limit after receiving their inheritance they would likely lose their ODSP benefits. To this respect, if the potential inheritance the beneficiary/ODSP recipient is to receive is significant, there is the very real risk that if no steps are taken to help to insulate the inheritance from counting against the asset limit the beneficiary would lose their ODSP benefits.
Although section 27(1) of the Regulation provides that the ODSP recipient’s assets may not exceed the maximum threshold, section 28(1) of the Regulation lists certain assets and/or interests which are deemed not to be included in the calculation of an ODSP recipient’s assets. These “non-counting” assets potentially include a trust that is established by a beneficiary with funds that they inherit from an estate. Specifically, item 19 of section 28(1) of the Regulation provides that the following would not count against the asset limit:
“Subject to subsection (3), the person’s beneficial interest in assets held in one or more trusts and available to be used for maintenance if the capital of the trusts is derived from an inheritance or from the proceeds of a life insurance policy.”
Section 28(3) of the Regulation then further provides:
“The total amount allowed under paragraphs 19 and 20 of subsection (1) shall not exceed $100,000.”
As a result of section 28(1)19 of the Regulation in conjunction with section 28(3), if an ODSP recipient receives an inheritance or the proceeds of a life insurance policy they are allowed to put up to $100,000.00 of such funds into a trust to be held for their benefit without such funds counting against their asset limit for ODSP. As a result, if the inheritance that the ODSP recipient is to receive is $100,000.00 or less (or close to $100,000.00 such that any excess over $100,000.00 would not put them offside the asset limit), the potential option of putting the inheritance into a trust for the benefit of the ODSP recipient may be available to help insulate the inherited funds from counting against the asset limit.
If a beneficiary/ODSP recipient would like to explore the possibility of establishing such a trust after death they should speak with a lawyer to ensure that the trust is drafted in compliance with ODSP requirements.
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This week on Hull on Estates, Natalia Angelini and Nick Esterbauer discuss S.A. v Metro Vancouver Housing Corp., in which the Supreme Court of Canada addresses Henson trusts for the very first time.
Should you have any questions, please email us at email@example.com or leave a comment on our blog.
Henson trusts are a valuable estate planning technique to protect the interests of individuals receiving asset-dependant social assistance, such as ODSP. However, as discussed in the recent decision of the Supreme Court of Canada in S.A. v Metro Vancouver Housing Corporation, a Henson trust may be invaluable in preserving other forms of need-based assistance.
The appellant, S.A., was a disabled individual receiving monthly distributions under British Columbia’s Employment and Assistance for Persons with Disabilities Act. S.A.’s father passed away in 2012 and S.A. was one-third residuary beneficiary of his Estate. In order to preserve her entitlement to assistance, her share was settled in a Henson trust in which S.A. was the primary beneficiary and a co-trustee.
In 2015, S.A. submitted an application (the “Application”) to the Metro Vancouver Housing Corporation (“MVHC”) in order to be eligible for subsidized rent. The Application required S.A. to disclose whether she held assets totaling in excess of $25,000. S.A. indicated that she did not. MVHC was made aware of the existence of the Trust as a result of prior correspondence with S.A. and, as a result of her failure to disclose her contingent interest, S.A.’s application for subsidized rent was denied.
S.A. commenced proceedings against MVHC seeking, among other relief, a declaration that her contingent interest in the Trust was not an asset for the purposes of the Application. Both the trial judge and the British Columbia Court of Appeal dismissed S.A.’s petition. S.A. appealed to the Supreme Court of Canada.
This case was the first instance in which the Supreme Court was tasked with considering the nature of a Henson trust. As such, the Court restated the central features of a Henson trust, namely:
- The beneficiary in question must not have a fixed entitlement;
- The trustees retain absolute discretion as to whether any distributions are made to the beneficiary, including the discretion to make no distribution; and
- The beneficiary must not retain the entirety of the beneficial interest in the trust such that he or she could collapse it pursuant to the Rule in Saunders v Vautier.
S.A. was ultimately successful at the Supreme Court level, but on the basis of contractual interpretation rather than the nature of her interest in the Trust itself. The central issue was whether S.A.’s beneficial interest in the Trust was an asset for the purpose of the Application.
The Court considered the Application and applied basic principles of contract law, namely, that the Application was to be read as a whole with the words to be given their ordinary grammatical meaning. The term “asset” was not specifically defined in the Application to include a contingent interest in a trust.
MVHC attempted to point to an Asset Ceiling Policy that it relied on to inform its definition of an “asset” for the purposes of the Application. This Policy was a separate document setting out a non-exhaustive list of assets that ought to be disclosed by applicants. However, the Court noted that the Policy was not referenced in the Application proper. The Court held that a “reasonable person” interpreting the Application would not consider a contingent interest in a trust to be an asset for the purposes of that Application.
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The Henson Trust has become fairly common estate planning tool for those looking to provide a bequest to someone who may be receiving government benefits such as ODSP without such an individual losing their qualification to the government benefits. At the core of the Henson Trust is the concept that the trust is wholly discretionary, with the assets that are placed in the trust not “vesting” in the beneficiary who is receiving the government benefits until the trustee has decided to make a distribution in their favour. This allows the trustee to ensure that the beneficiary does not receive a greater amount from the trust in a given time period than allowed under the government benefits, such that the beneficiary can continue to receive their government benefits as well as receive funds from the trust.
But what happens to any funds that may be left in the trust upon the death of the beneficiary for whom the Henson Trust was primarily established? Typically, the terms of the trust will provide for a “gift-over” of any residue to an alternate beneficiary. If the trust fails to provide for such a “gift-over” however, it could have significant repercussions to the primary beneficiary for whom the Henson Trust was established, and could result in the Henson Trust being declared void.
For a trust to exist it must have what are known as the “three certainties”. They are:
- Certainty of Intention – It must be clear that the settlor intended to create a trust;
- Certainty of Subject Matter – It must be clear what property is to form part of the trust; and
- Certainty of Objects – It must be clear who the potential beneficiaries of the trust are.
A trust that does not have the “three certainties” is an oxymoron, insofar as there can be no trust that offends the three certainties as the trust failed to be established. In the circumstance contemplated above, the lack of “gift-over” upon the primary beneficiary’s death would arguably equate to there being a lack of “certainty of objects”, insofar as it is not clear who all of the potential beneficiaries of the trust are. If it is found that the trust does offend the “certainty of objects” it would fail. Should the trust fail, the primary beneficiary for whom the Henson Trust was established would no longer have the funds which would have formed the Henson Trust available to top up the funds which they receive from their government benefits, with such funds likely now forming part of the residue or being distributed on a partial intestacy.
Although the historical application of the “three certainties” would result in the Henson Trust contemplated above having been declared void from the beginning, insofar as no trust that offends the three certainties can be found to exist, it should be noted that the court in Stoor v. Stoor Estate, 2014 ONSC 5684, went to great lengths to avoid such an outcome. In Stoor Estate, notwithstanding that the court found that the trust in question failed as a result of it offending the three certainties for a lack of “certainty of objects”, the court delayed the failure of the trust until after the primary beneficiary’s death believing that it was in keeping with the testator’s intentions.
There has been significant debate about whether the Stoor Estate decision was correctly decided, and what impact, if any, it should have upon the historical application of the “three certainties”. What is not in debate however is that it is important that when drafting a Henson Trust, or any trust for that matter, to ensure that you provide for a gift-over of the residue upon the primary beneficiary’s death. If you fail to provide for such a gift-over you run the risk that the trust will be declared void for offending the three certainties, thereby depriving the individual for whom you were establishing the Henson Trust the opportunity to receive such funds in addition to their government benefits.
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Alberta recently passed legislation which will allow for the use of Henson trusts in estate planning in the province. Although Henson trusts are commonly used in Ontario, prior to this new legislation, the law in Alberta provided that the value of an individual’s interest in a trust was to be included in calculating his or her assets for the purpose of determining eligibility under Alberta’s Assured Income for the Severely Handicapped (“AISH”) program, thus preventing the effective use of Henson trusts.
A Henson trust is a type of trust often used here in Ontario in situations where a beneficiary is a recipient of The Ontario Disability Support Program (“ODSP”). An individual’s eligibility for ODSP is determined based on his or her income and assets. The Henson trust has emerged as a strategy to provide for a disabled beneficiary without compromising his or her eligibility to receive ODSP benefits.
The regulations to the Ontario Disability Support Program Act, 1997, S.O. 1997, c. 25, Sched. B provide that if a person has a beneficial interest in a trust that is derived from an inheritance or proceeds of a life insurance policy, provided that it does not exceed $100,000.00, this interest will not be included in calculating his or her assets. On the other hand, a Henson trust is not restricted as to size, as it is set up to be fully discretionary, such that the beneficiary does not have a vested interest in the trust.
A Henson trust would usually be set up such that the beneficiary who is a recipient of ODSP is the subject of the trustee’s absolute discretion to make distributions to him or her. Upon the beneficiary’s death, there will typically be a gift-over to a person or entity other than the disabled beneficiary. As the disabled beneficiary is not entitled to any assets from the trust (given the trustee’s absolute discretion), it is not considered to be an asset of his or hers. The trustee of a Henson trust should still be mindful in making discretionary distributions to the disabled beneficiary, so as not to exceed the maximum annual income receivable by them, and possibly risk disentitling the beneficiary to ODSP benefits.
As discussed in this article, Alberta recently passed An Act to Strengthen Financial Security for Persons with Disabilities (SA 2018, c 12), which provides that a person’s interest in a trust is not to be included in the calculation of that person’s assets for the purpose of AISH, and repeals the section of the regulations which previously allowed for the inclusion of a trust interest in this calculation. As noted in the article, this will now allow for the use of Henson trusts in Alberta, and provide more flexibility in estate planning where a disabled beneficiary is receiving government support.
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The holiday season is upon us, and with it comes family gatherings, buying and wrapping gifts, and travel. Suffice to say, it can be a hectic and busy time. Nonetheless, with 2018 on the horizon, many of us take the time to reflect and set resolutions for the upcoming year. Despite this, so many Canadians do not have a Will.
Why not? Estate planning need not be trying, and the holiday season is a perfect time to start considering your estate plan.
With this in mind, I thought I would highlight an article from the Globe and Mail which does a great job of highlighting issues to get you thinking about your estate plan:
- Get started – make a detailed list of your assets, liabilities, and joint assets, and think about your family’s needs and lifestyle.
- Consider your options – do you want your bequests to be absolute, subject to the terms of a trust, or gifted during your lifetime?
- Appoint representatives – think about who you trust to administer your estate and ensure that they are up for the job.
- Special circumstances – are there any beneficiaries who have special circumstances such as those receiving ODSP, that would benefit from specific trusts?
- Taxation – meet with a professional to understand tax consequences and the vehicles available to limit the payment of taxes, including the use of joint ownership and estate freezes.
- Cottages – should your estate involve the cherished family cottage, think about whether you want it sold, or shared amongst family members. If the latter, think about preparing a co-ownership agreement.
Wishing all of our readers a happy New Year!
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The answer is no according to Borges v. Santos, 2017 ONCJ 651.
In Borges v. Santos, a garnishment proceeding was commenced by Maria, who was entitled to child support from Antonio. Maria sought to garnish a trust that was established from the Estate of Antonio’s mother. Pursuant to the Will of Antonio’s mother, the Trustees were given an absolute and unfettered discretion to pay any part of income or capital for Antonio’s benefit and to keep Antonio’s comfort and well-being in mind in exercising their discretion. In this case, the Trustees also happened to be Antonio’s brother and sister as well as the gift-over beneficiaries of this Trust such that they will be entitled to all income and capital that were not distributed to Antonio 21 years after their mother’s death.
In one of her arguments, Maria contended that the Trust was not truly discretionary because of the non-arm’s length relationship between the Trustees and Antonio since they were siblings. The Court in case clarified that Tremblay v. Tremblay, 2016 ONSC 588, “does not stand for the proposition that all familial relationships between trustees and beneficiaries automatically demonstrate that the trust is under the control and hence the property of the beneficiary” for the purposes of the Family Law Act.
Interestingly, Antonio gave evidence in this proceeding that he wanted the Trustees to honour his child support obligations to Maria, although they chose not to comply with his wishes. Ultimately, as obiter, the Court also asked the Trustees to consider making a distribution to Antonio for his comfort and well-being by supporting his son, Christopher, while acknowledging that he could not order them to do so.
For those of you who are interested in the essential elements of a Henson Trust, click here, for a previous blog on this topic by Ian Hull.
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The “Henson trust” is a type of trust often used in estate planning to deal with situations where there is a disabled beneficiary who is entitled to receive support payments from the Ontario Disability Support Program (ODSP). The name of the Henson trust originates from an Ontario case, The Minister of Community and Social Services v Henson,  OJ No 1121, aff’d  OJ No 2093 (Ont CA), where the Court held that a discretionary trust established for a disabled beneficiary would not result in a loss of government benefits, as the beneficiary had no vested right to receive income or capital from the trust.
Under the Ontario Disability Support Program Act, if a recipient of ODSP has assets, or receives income over a prescribed limit, they will cease being eligible to receive support payments. An individual cannot hold more than $5,000.00 in assets (with some exceptions, including their principal residence and a vehicle) and continue to receive ODSP. However, ODSP often does not provide sufficient income, and the restrictions on income and assets cause recipients to subsist on very little, or risk losing their ODSP. One way to address this issue is through the establishment of the Henson trust.
The essential elements of a Henson trust are: (i) that the trustee must have absolute discretion, (ii) that the assets of the trust do not vest in the beneficiary, and (iii) that there is a gift-over following the death of the beneficiary. While usually a beneficial interest in a trust is taken into account in determining an individual’s assets, the Henson trust is an exception, due to the fact that the beneficiary in this type of trust has no vested interest in the assets, nor any right to demand that the trustee pay them from the trust. As such, the beneficiary is not required to treat the trust assets as his or her own and consequently, the Henson trust provides a method of providing additional income to a disabled beneficiary without causing them to become ineligible for ODSP.
The Henson trust, however, is not a perfect solution. First, it relies on the absolute discretion of the trustee in order to meet the requirements of the trust. Because Henson trusts are often created in a will by parents of a disabled beneficiary to ensure that their child will be properly looked after, the parents are forced to repose complete trust in their chosen trustee. That trustee consequently holds a great deal of responsibility. Thus, it is vital to choose a trustee that is unquestionably trustworthy, who will prioritize the best interests of the child and will not take advantage of their position.
Second, the Henson trust cannot avoid the rules with respect to income limits for recipients. Therefore, the payments to the beneficiary from the trust still cannot exceed the income limits for ODSP. Although the trust helps to provide a guaranteed, steady income to a disabled beneficiary, they will likely still be living on quite a low income.
If a settlor of a trust has sufficient assets to provide for a disabled beneficiary, they may want to consider a regular trust arrangement, as opposed to a Henson trust. The downside of course, is that, depending on the amount of payments to the beneficiary, they may lose their eligibility for ODSP. However, it may be worth the trade-off to ensure that your loved one can live comfortably. Before making a Henson trust arrangement, talk to a trusted advisor who can help determine the best fit for you.
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